Cheat Sheet: How to Prioritize your Savings and Debt

People always seem have questions about their financial priorities: Should I invest or pay off debt? Save in my work 401(k) or open an IRA? This cheat sheet will tell you. It helps you visualize your financial priorities in the most basic terms.

It’s sort of like the previously mentioned “Ladder Method,” which tells you how to prioritize your investments. But this “retirement wrapper,” as Reddit puts it, includes all of your finances in general: debt and emergency funds, too. Plus, it helps you visualize it. Here’s a basic explanation of each line:

Emergency fund: You should have a safety net before anything else.

401(k) contribution match: This is almost like free money, so you want to take it if you can.

Individual Retirement Accounts(IRAs): Max these out if you can. Saving for your retirement is important.

401(k): Still have cash left over? Congrats, moneybags. Now go back to saving in your 401(k). Your don’t have as much flexibility as an IRA, but at least you have the tax advantage.

Savings/Investments: If you STILL have cash after maxing out your 401(k), then stash it in your personal savings or a taxable investment account.

So you’re saving up for something big, but you aren’t sure where to store that money.

Note: this cheat sheet reflects an older income limit for 401(k)s. The current limit for 2015 and 2016 is actually $18,000.

You might not agree with every step for your own situation. For example, maybe you’re planning to buy a home, so after you max out your IRA, you’d rather contribute to your personal savings (which is a better place to park a home down payment) than go back to the 401(k). Of course, your own priorities could vary, but this still gives you a basic idea of personal finance 101.